Posts Tagged ‘Debt to GDP Ratio’

The global economy is poised on a knife-edge between inflation and deflation. The inflationary vector could dominate quickly, based on a combination of Trump deficits & Fed accommodation. Conversely, the deflationary vector could dominate based on fundamental factors such as a strong dollar, deleveraging, demographics & technology combined with premature Fed tightening.

I don’t know what the Fed’s going to do. That’s a guessing game. What’s important is that we’re in an extremely fragile situation. The world has too much debt & the Fed’s margin for error is tiny. If it takes a wrong step & stocks plummet 50%, it could cause a bigger financial crisis than in 2008. Do you trust the US government & the Fed to manage this dangerous situation?

The problem France will find further down the road is that its own debt dynamics & sustainability is also highly questionable. Estimates we have used before with calculations for the present value of unfunded liabilities (as a % of GDP) show that its not Spain or Italy that have the worst long-term debt sustainability issues; its the US & France & then surprisingly, Germany.

Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007.

China is caught in a monumental debt trap. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100pc to 250pc of GDP in eight years. It means that China is the New Greece—-but one sporting 40X more GDP and 70X more debt.

Repercussions of Russia on a gold-exchange standard would be immense. A gold standard would be politically appealing, transforming ruble to a formidable currency & reducing outflows significantly. As a pro-gold stance is anti-dollar, speculation about how US would react raises questions of whether an all-out currency war would follow.

Central bank gold buying in recent years has not helped the gold price one bit. A few nations may indeed be forced to sell some of their official gold reserves as a result of plunging oil prices. It seems however not likely at this juncture that Russia will be one of them. Moreover, the impact on the gold market should also be quite limited.

With the US national debt or government debt now at over a staggering $18 trillion, it means that each household in the US now carries the burden of $124,000 in national debt alone – or $56,378 per individual. This does NOT include private or household debt, mortgages, personal loans, credit card debt, student loans, car loans, etc.

None of the attributes that made the US & the dollar so great and deserving of the world’s reserve currency status, exist today. America is now a mirror image of its former self- Now the world’s biggest debtor, with the biggest trade deficit and the dollar backed by nothing.

How bad is the global debt picture? It’s frighteningly bad – Aggregate net government debt in the world is expected to rise by 62% from $26 trillion in 2008 to $42 trillion in 2013 & U.S. accounts for 42% of the increase in global debt.